Daily Archives: June 11, 2014

Since the rise of the Tea Party, Republican incumbents in the House of Representatives have faced a basic political question. Do they represent safe districts, in which case the threat to their survival comes from rightwing populists challenging them in primaries? Or do they represent swing districts, where the graver danger comes from a moderate Democrat running against them in a general election?

In the former case, which occurs more often, the ideal stance is to be a principled and unreasonable rightwing conservative. Those subject to a Tea Party challenge must not, under any circumstances, cast a vote to raise the debt ceiling, regularise the status of undocumented immigrants or accept the legal existence of the Affordable Care Act.

For the smaller group of House members in swing districts, the situation is the reverse. Compromise, reasonableness and moderation assume their normal place as political virtues.

The problem Eric Cantor faced, and the reason for his unexpected defeat in a Virginia primary last night, is that he was unable to make this choice in either direction. This was not because of any lack of political sophistication on his part but because of his role as House majority leader. Continue reading »

If anything has survived more or less intact in the aftermath of the global financial crisis, it is inflation targeting. This is odd. After all, pre-crisis, many economists and policy makers enthusiastically embraced the “Great Moderation” – the idea that wise monetary policies had not only helped bring inflation to heel but also, as a result, delivered more stable economic activity. “No more boom and bust” was not the boast of politicians alone: it became a core belief of the economics establishment.

Yet the boast was clearly wrong. A narrow focus on price stability ultimately proved extremely damaging. Policy makers ignored other signs of incipient instability, most obviously rapid credit growth and, in the US at least, surging housing activity. Having done so, they gave the green light to excessive risk-taking: with inflation under control, there was no reason for investors to worry about nasty monetary shocks. Continue reading »